The Immorality of Moral Hazards in a Time of Bailouts

Moral hazard: “lack of incentive to guard against risk where one is protected from its consequences, e.g., by insurance.”

The United States continues to plunge ever deeper into a calamitous economic crisis, throwing tens of millions of people out of work and bringing food insecurity to millions more, including perhaps one in six children. As Congress debates how to respond, a familiar complaint is wafting through our political discourse: the moral hazard. 

That’s the idea that if you do too much for people—if you make things too easy for them—they won’t face the risks or consequences necessary to behave properly. The result of such indulgence, it is said, is the depletion of scarce resources, moral corruption, and/or other social ills.

In the first major COVID-19 bailout package, Congress provided a substantial supplement to our usual penurious unemployment benefits, and many Republicans grumbled bitterly that people would have no incentive to return to work since the benefits now paid them more than their full-time wage did. (Indeed, a new working paper from the University of Chicago found that with the $600-a-week supplement, the median unemployed person is earning 34 percent more than they did while working.) Never mind what that says about how crappy full-time wages are for so many Americans. Or that those extra benefits are time-limited and expire at the end of July. The point was that some people can’t be trusted to behave themselves.

Similar warnings have long been sounded about food stamps, now known as the Supplemental Nutrition Assistance Program. SNAP provides, on average, about $250 a month in assistance to eligible families and a small number of single individuals. It expands during economic downturns, for obvious reasons. But as Democrats have attempted to fortify SNAP in response to the current crisis, Republicans have trotted out the familiar complaint—that doing so is a Trojan horse for Democrats’ nefarious plans to prevent more kids from going hungry even in the absence of a crisis.

For example, according to The New York Times, Texas congressman Mike Conaway, the ranking Republican on the House Agriculture Committee, recently balked at “Democrats’ narrative of ‘hardhearted Republicans.’” Instead, Conaway “warned against tempting people to become dependent on government aid. ‘I don’t want to create a moral hazard for people to be on welfare.’” 

If the government is just throwing steak and caviar at you, you lazy leeches will just make yourself fat and happy at the expense of hardworking Americans, right? 

What kind of expense are we talking about? The total annual cost of SNAP is roughly $60 billion. To be eligible, a family of four can have an annual gross income of no more than about $33,000. A third or more of families that receive SNAP benefits still rely on food banks and other charitable food donations.

Sixty billion dollars may sound like a lot. But many of the same folks who typically complain about such indulgences have said nary a peep about a tax break tucked into the March coronavirus package that will cost at least $100 billion in 2020 alone. About 80 percent of the benefits of that tax break—a repeal of limitations on write-offs for certain businesses—will flow to households with incomes of over $1 million a year. The average windfall for those families will be $1.6 million. Only 3 percent of households with incomes of less than $100,000 will get anything. 

This giveaway is considerably more than the entire cost of SNAP. But no one’s worried about moral hazards for the yachted classes. 

To hear these arguments in the age of moral reprobate Donald Trump is especially gobsmacking. The president lies constantly, is unconstrained by conscience, and has little or no empathy or concern for anyone who cannot help him personally. He will say and do anything to give himself an advantage, no matter how ludicrous or destructive. 

And Republican officeholders, with few exceptions, have decided that he is to be protected, at all costs, from the consequences of his extraordinarily reckless actions. 

Conaway—who is just a stand-in for a wider moral failure—has voted with Trump an impressively slavish 98 percent of the time and, of course, voted no on both articles of impeachment. It’s fair to say that, when it comes to the most powerful person in the world, his concern for moral hazard is nowhere to be found. Instead, Trump must be fully shielded from accountability precisely so that he might continue indulging himself. 

His entire presidency is a textbook case of moral hazard. Enablers like Conaway betray an astonishing lack of shame in trying to direct our attention to costs that are, by contrast, obscenely petty and inconsequential.

JONATHAN WEILER is a teaching professor in global studies at UNC-Chapel Hill and co-author of Prius or Pickup? How the Answers to Four Simple Questions Explain America’s Great Divide and Authoritarianism and Polarization in American Politics.

Comment on this op-ed at backtalk@indyweek.com. 

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